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Consider the following scenario analysis: Rate of Return Scenario

Probability Stocks Bonds

Recession .20 −6 % +17 %

Normal economy .50 +20 +8

Boom .30 +29 +6

a. Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms? Yes No

b. Calculate the expected rate of return and standard deviation for each investment. (Do not round intermediate calculations. Round your answers to 1 decimal place.) Expected Rate of Return Standard Deviation Stocks % % Bonds % % c. Which investment would you prefer? Stocks Bonds

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